[Anonymous]

Rate pricing sheet that is structured according to credit score/LTV/number of months. If the initial, discounted rate is determined by the combination of these factors, does each one have to be considered a different program? The rate cap is 6% above initial rate regardless, maximum of 2% per year adjustment, same floor. They are all the same type of ARM-5/1. Can I get by with 1 early ARM disclosure to cover all of the different initial rate varieties or will we have to have a different one for each? If it can be covered with one, what rate should be used for example? Thank you in advance for any clarity.

[rcooper]

You would not need a separate program disclosure for each discount amount. You would need a separate disclosure for ARMs with a discount, ARMs with a premium and for those without a discount or a premium. You can combine all three into one disclosure if you include all the information about each one (see Commentary 1026.19(b)(2)-3 linked here: https://www.bankersonline.com/regs/12-1026/12-1026-019.html). You would base your example on a discount used recently – the commentary to the historical example says to use a discount or premium that was used within the six months preceding preparation of the disclosure. Both the historical example and the interest rate/payment example should be updated annually.

Here’s the commentary to Reg Z on what constitutes a program:

1026.19(b)(2)-2

2. Variable-rate loan program defined. i. Generally, if the identification, the presence or absence, or the exact value of a loan feature must be disclosed under this section, variable-rate loans that differ as to such features constitute separate loan programs. For example, separate loan programs would exist based on differences in any of the following loan features:

A. The index or other formula used to calculate interest rate adjustments.

B. The rules relating to changes in the index value, interest rate, payments, and loan balance.

C. The presence or absence of, and the amount of, rate or payment caps.

D. The presence of a demand feature.

E. The possibility of negative amortization.

F. The possibility of interest rate carryover.

G. The frequency of interest rate and payment adjustments.

H. The presence of a discount feature.

I. In addition, if a loan feature must be taken into account in preparing the disclosures required by §1026.19(b)(2)(viii), variable-rate loans that differ as to that feature constitute separate programs under §1026.19(b)(2).

ii. If, however, a representative value may be given for a loan feature or the feature need not be disclosed under §1026.19(b)(2), variable-rate loans that differ as to such features do not constitute separate loan programs. For example, separate programs would not exist based on differences in the following loan features:

A. The amount of a discount.

B. The amount of a margin.

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